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Passive House vs. Law of Diminishing Returns

Updated: Apr 11, 2023

This article aims to remove the common bias of diminishing returns within high performance building components and touch on some of the economics that drive the Passive House methodology. This article summarizes and expands on an older report by Yetsuh Frank, from Building Energy Exchange that can found here.


Energy codes in North America are driven by two major factors that falsely skew the advantages of high performance components and systems:

  1. Analyzing the performance of individual building components rather than a holistic approach that assesses the overall building performance as a whole system.

  2. Utilizing the concept of diminishing returns to determine cost effectiveness of individual components.

First, the performance requirements of building components are typically evaluated on a component by component basis with little consideration for how these choices affect one another. For instance, choosing to install high performing windows may allow a project to install less insulation to meet the project's energy demand however, current codes, offer only a prescriptive criteria for both individual components. Using this methodology, there is no advantage to optimizing cost to building energy performance, despite the fact that higher performing components will typically pay for themselves many times over across the life of the building while providing superior durability, and comfort. This prescriptive approach masks the cost effectiveness and inherently reduces the chance they will be considered.


Second, this approach sets a performance criteria of specific components that is usually selected by determining a point of diminishing returns.

Take insulation for example: The first few inches of insulation in an exterior wall assembly are the most critical inches. Upgrading your wall from an R1 to an R5 offers an exponential drop in heat flow. However, doubling the insulation to R10, doubles the cost of additional insulation but does not offer the same drop in heat flow as the initial R1 to R5. Doubling again from R10 to R20, doubles the cost again, and offers even less improvement in performance. It is at this point that codes professionals typically determine it is no longer cost effective to increase the performance of the component in question and set the prescriptive requirements for that building component.

While this make sense with regards to the individual component, it is shortsighted when considering the the whole building as a system, with each building component working together to lower the final energy requirements of the building aka energy balance.


This line of thinking dismisses the notion that increasing the performance in one building component can reduce spending in other building components.


A building's energy balance is where the sum of a building's heat loss equals the sum of it's heat gains. Heat is lost through the building's roof, walls and slab, windows/doors, air leakage/ventilation. Heat gains are from solar and internal heat gains with the remainder determining the final size of your mechanical system to match your heat loss. The energy balance is critical in right sizing your mechanical system. Too small a system and you wont be able to overcome the losses and too big a system and you are over paying for an unnecessary oversized mechanical system that comes with added operational, maintenance and repair costs.




For example, building a standard 2500 sq.ft home in a Climate Zone 7 - Cold Climate with an R60 wall assembly instead of the building the code mandated R30 wall assembly. Taking it a step further, we can also opt to upgrade to better performing Passive House certified windows. Upgrading the windows can significantly raise the R-effective value of the entire wall assembly combined with the additional insulation all work to lower the total heat loss of the building. In fact, choosing better windows will allow you have less insulation in your walls, should you want to work with a slimmer wall assembly. Energy modelling through PHPP will help determine the total energy saved via better windows and how much insulation can be removed to balance the heat gains to losses.


Now let's add another variable to the above example. Of course, there is an added cost of choosing additional insulation and/or better performing windows but there is a tipping point when the specific heating energy demand drops to a point that the significant drop in mechanical system sizing offer savings to help offset the increased cost of the insulation and windows. That critical specific heating demand number for optimizing cost to performance is 15 kWh/(m^2 a), which coincidently is the upper limit requirement for heating demand for certifying Passive Houses.

The reduced heating demand will significantly reduce the amount of solar panels required to achieve net zero and also be a cheaper system to install. Additionally, high performance Passive House windows don't require a heat source nearby so HVAC ductwork is simplified in both material and labor offering further cost saving measures.



Compounding, the operational cost savings over the total cost of building ownership along with escalating electricity utility rates and the initial capital investment in Passive House principles becomes very quickly financially feasible.


The opportunity costs of this paradigm in terms of carbon emissions is significant. Sometimes increased performance can reduce first costs.


Certainly, there is little about our codes that precludes project teams from pursuing holistic solutions that take advantage of the type of synergies described here. And the role of our codes is to act as a backstop, to determine the minimum that must be provided, not to establish industry leadership. But our codes are the central reality of the building industry, setting the tone for virtually all design and construction decisions.


Passive House has been designed to take advantage of the interaction between envelope performance and the heating and cooling systems. The fact that Passive House is seen as such a revelation by so many in our industry speaks to the manner in which our current code paradigm has quietly shaped the way we look at decisions about building performance. Even if something like the full Passive House standard is not adopted as our energy code, it will be a huge improvement if the principles embedded in the standard become our typical approach to design decisions, altering both the cost and performance of our buildings positively.


Pembina Institute released a report in 2013 on Ontario's long term energy plan and compared the difference in achieving 14,892GWh between via green energy vs. nuclear. They further breakdown the comparison into a weighted average price cents per kWh. Not surprising to note, energy conservation is significantly cheaper than any other form of energy generation, in some cases, by several orders of magnitude.

In the end as long as energy conservation measures cost less than the cost of purchasing or generating energy, then putting energy conservation first before all other options is the best long term energy strategy for any project.



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